SEBI has recently unveiled a consultation paper proposing a significant overhaul of the “fit and proper person” framework governing market intermediaries, such as brokers, merchant bankers, and others, as well as persons associated with them. The consultation, open for public feedback until late February 2026, seeks to address long-standing concerns around regulatory uncertainty, procedural unfairness, and the unintended consequences of automatic disqualifications. If implemented meaningfully, the proposals could reshape how eligibility and integrity standards are applied in Indian capital markets.

There is clear internal recognition within SEBI that the existing fit and proper criteria—particularly the sudden adverse changes introduced in 2021 without adequate consultation—had become increasingly vulnerable to legal challenge. These changes generated sustained unease across the market, especially in the aftermath of litigation arising from the National Spot Exchange Ltd (NSEL) episode. Certain disqualification triggers, especially those linked merely to the filing of criminal complaints or charge sheets in economic offence cases, were difficult to justify on first principles. This formed the backdrop to the consultation paper now placed in the public domain.

The current regime requires the applicant, the intermediary and a wide universe of related persons—including directors, key management personnel, and persons in control—to satisfy standards of integrity, reputation, and financial soundness. While conceived as a safeguard for market integrity, the framework gradually acquired a punitive and mechanical character. In practice, it often functioned less as a considered test of suitability and more as an automatic trigger for exclusion, with little regard to proportionality or context.

Over the past five years, the framework has operated with a severity that can fairly be described as extremely disproportionate. The mere filing of an FIR, a charge sheet or a complaint—long before any judicial finding—was sufficient to invite disqualification. There was no explicit assurance of a prior hearing before declaring an........

© Free Press Journal